Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
958046 | Journal of Economics and Business | 2006 | 16 Pages |
Abstract
We consider the design of contracts that pay managers on the basis of a project's payoff. We show that a contract that induces appropriate timing of project investment by a privately informed risk neutral manager will not offer proper incentives to forgo perk consumption at the time of investment. Under the firm's optimal contract within the class of payments that do not depend on time of investment, the manager waits too long to invest. The optimal contract can be implemented with a call option on the project payoff.
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Social Sciences and Humanities
Business, Management and Accounting
Strategy and Management
Authors
Nicholas Wonder,